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Indian and Pakistani expats face a gold vs currency dilemma

Demand for gold in the UAE is getting some serious competition now — from the currency exchange market.
Rather than buy gold now, despite the near 6 per cent drop in prices since the start of the year, a good number of consumers, especially those from the Subcontinent, are using the dip in their local currencies to send funds back home. Or they are holding off from committing to any gold purchase in anticipation of a further drop in their home currency.

Local gold retailers and currency exchange houses have been running aggressive marketing campaigns to convince residents about the optimum way to make use of their money right now. A favoured tool has been SMS campaigns as well as radio spots.
When you have a currency decline at these levels, any drop in gold prices neutralises buyer sentiments. You have traditional gold buyers thinking of making use of the currency decline to send funds back home. That’s what we have been seeing for the last 10 days.”
-Cyriac Varghese | General Manager at Sky Jewellery
But it still leaves many undecided about whether to make use of the dip to buy gold or stick with getting more for their dirham.
“You have the (Indian) rupee at 18.70 to a dirham, and there’s the sentiment that it might break the Rs19 level,” said Cyriac Varghese, General Manager at Sky Jewellery. “The Pakistani rupee too has depreciated so badly (by 15 per cent since the start of the year and is currently at 33.14 to the dirham).

“When you have a currency decline at these levels, any drop in gold prices neutralises buyer sentiments. You have traditional gold buyers thinking of making use of the currency decline to send funds back home. That’s what we have been seeing for the last 10 days.
“Some of the resistance to buying gold now could also be due to shoppers still wary about VAT (value added tax) and the import duty. VAT has certainly made them more analytical about when to buy, whereas earlier the only criteria were price and purity. For the moment, the best option for retailers is to keep pushing promotions offering defined price benefits. We have to convince shoppers to buy at the dip.”
If shoppers see there are price advantages, they will get back into the market. It’s not as if they will take a prolonged break — the right price and promotions are bringing them back.”
-Abdul Salam K. P. | Executive Director at Malabar Gold & Diamonds
Gold is currently around Dh142 a gram for 22k based on the official Dubai bullion rate, having come under some pressure over the last two weeks. Through the better part of this year, the average had been above Dh150 a gram, with a high of Dh154.5.

That decline did spur some demand since last Thursday evening (June 28) and which continued over the weekend. In fact, “On Friday (June 29), UAE’s gold sales had its best one-day performance in the year-to-date with volumes of 300 kilos,” said Abdul Salam K. P., Executive Director at Malabar Gold & Diamonds. “That’s against the daily average of about 200 kilos the rest of the year.” (For comparison’s sake, the last five days of 2017 saw more than 1 tonne of gold clearing the showrooms each day, as shoppers went in for a last round of manic buying ahead of VAT from January 1, 2018.) “Sure, the current drop in gold prices could have spurred higher demand — but it’s a fact that the depressed job market and concerns about job security too are cramping buyers. Plus, right now, the gold market is totally dependent on domestic buying — a pick up in tourist shoppers may have to wait until later this year.” (The latest Emirates NBD survey for June reports that new job creation within UAE’s private sector was minimal. Expectations of improvements in the near term remain muted, industry sources add.) Industry sources are divided about how well, or otherwise, gold buyers have adjusted to VAT and other duties. Salam reckons that the prolonged dip brought on by VAT is nearing its end. He points to pick up in demand over the June 28-July 1 period as evidence.
“If shoppers see there are price advantages, they will get back into the market,” he added. “It’s not as if they will take a prolonged break — the right price and promotions are bringing them back. Maybe not at higher levels as in the past, but still activity is getting better.”
But, according to Chandu Siroya of Siroya Jewellers, VAT has negated much of the price advantage for the gold trade. “Currently, the VAT inclusive price of jewellery here is almost on par with those in most countries of the Subcontinent,” Siroya said. “As such, visitors and expats returning home are restricting their purchase of jewellery. We are also awaiting the refund mechanism for tourist purchases of jewellery.
The VAT inclusive price of jewellery here is almost on par with those in most countries of the subcontinent. Visitors and expats returning home are restricting their purchases of jewellery. ”
-Chandu Siroya | Siroya Jewellers
“We in the gold trade had proposed to the authorities to make the VAT on the value-added (portion of the jewellery) since the basic raw material — gold — is zero-rated. If this is to happen, demand for jewellery will surge and there can be a 30-40 per cent growth in retail-level sales.”
Sky’s Varghese also agrees that more needs doing to reassure buyers here, saying that many expat Indians and Pakistanis see merit in buying gold back home rather than here. More so now, given the weakened situation of the rupee.
“The currency declines against the dollar have been on par with drop in bullion prices — from $1,325 an ounce to $1,239 — or even higher,” said Varghese. “We have seen in the past that each time there’s a major shift in currency, the tendency has been to convert and send rather than spend here. It means this neutralises the drop in gold prices.
“This is what we are seeing more of now, and more so because shoppers are still fretting over the VAT costs and the higher import duty surcharges.”
Remittances to India from Gulf up over 10% last week

Pressure on the Indian rupee could continue, which means that Indian expats here will have every reason to maintain their frequency of visits to exchange houses.
At present, the rupee is at 68.60-68.70 level [and] remittances from the GCC have increased by around 10-15 per cent during the last week.”
-Adeeb Ahmad | Managing Director, Lulu Financial Group
“We feel that in the event of continuation of a (global) trade war, stock markets would falter,” said Adeeb Ahmad, Managing Director, LuLu Financial Group. “On the other side, oil prices are touching its highest levels since 2013.
“These would result in a further weakening of the rupee against the dollar — we feel the rupee might test 69.60 in a month’s time. At present, the rupee is at 68.60-68.70 level (and) remittances from the GCC have increased by around 10-15 per cent during the last week.
“Ramadan and Eid months are usually considered busy months for remittances. During the succeeding two months, the volume would come down significantly. Moreover, school holidays (in the GCC) and the reopening of schools in India are also factors affecting remittances to some extent. However, big-ticket remittances by high net worth expats could make use of the falling rupee.”

Source: Gulf News

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